72(t) / SEPP: The Three IRS-Approved Methods, Explained

What a 72(t) / SEPP is

IRC §72(t)(2)(A)(iv) creates a statutory exception to the 10% early-withdrawal penalty that normally applies to IRA distributions before age 59½. The exception is available when the account owner takes distributions as a Series of Substantially Equal Periodic Payments (SEPP or SoSEPP) — computed under one of three IRS-approved methods and continued for the required minimum duration. The governing guidance is IRS Notice 2022-6, which superseded Rev. Rul. 2002-62 for series beginning after 2022.

One fact to anchor everything that follows: §72(t) waives the penalty, not the tax. Every dollar distributed from a pre-tax traditional IRA under a SEPP is taxable as ordinary income in the year received — the exception removes the 10% penalty surcharge only. A taxpayer in the 22% bracket who takes a $21,000 annual SEPP payment owes ordinary income tax on that $21,000; the only saving is the 10% additional tax that would otherwise apply on top of the regular income tax. State income taxes on the distribution also apply where the state imposes them.

The three IRS-approved methods

IRS Notice 2022-6 (Q&A 7) defines three methods for computing the annual payment amount. All three satisfy the “substantially equal periodic payments” requirement; they differ in how they convert the account balance into a scheduled distribution — and in how much they pay.

RMD method — lowest payment, variable year to year

The annual payment equals the account balance divided by the Single Life Expectancy factor from the §1.401(a)(9)-9(b) table for the account owner’s age in that calendar year. The factor is re-derived each year on the then-current balance and the attained age for that year, so the payment is not fixed — it changes every year. This produces the lowest annual payment of the three methods but also the most flexibility: each year’s distribution is computed independently from a fresh balance, so a drop in account value automatically reduces the required payment.

payment_RMD = balance ÷ n

n = Single Life Expectancy factor from §1.401(a)(9)-9(b) for the attained age
(re-derived on the current balance and current-year age each distribution year)

Fixed amortization method — fixed payment, interest-rate driven

The balance is divided by the present-value annuity factor (aₙ), computed once from the Single Life Expectancy factor and a chosen interest rate. The resulting payment is fixed for every year of the series. Because the method implicitly assumes the balance earns the chosen rate over the distribution horizon, it supports a higher payment than the RMD method — the assumed earnings reduce the apparent cost of each distribution.

a_n = (1 − (1 + i)^(−n)) / i
payment_Amort = balance ÷ a_n

n = Single Life Expectancy factor (§1.401(a)(9)-9(b))
i = chosen interest rate (subject to the Notice 2022-6 Q&A 4 cap — see below)

Fixed annuitization method — fixed payment, actuarially derived

The balance is divided by an actuarial annuity factor derived from the survivor counts in the §1.401(a)(9)-9(e) mortality table (Notice 2022-6 Appendix B). Like amortization, the payment is fixed once established. The annuity factor is built from actual age-specific mortality probabilities rather than the rounded single-number life expectancy from the Single Life Table, which is why annuitization typically produces a slightly higher payment than amortization at the same balance and interest rate.

annuityFactor = Σ_{t=1}^{(120−age)} [ (l_(age+t) / l_age) × v^t ]
payment_Annuity = balance ÷ annuityFactor

v = 1 / (1 + i)
l_x = survivor count at age x from §1.401(a)(9)-9(e) Table 4

The Bob worked example (IRS Notice 2022-6, Q&A 7)

IRS Notice 2022-6 Q&A 7 provides a worked example for a taxpayer the IRS calls Bob. Bob is age 50 with an IRA balance of $400,000 and uses a 4% interest rate for the two fixed methods. These are the exact figures from the Notice.

Setup: age 50 · balance $400,000 · interest rate 4%

Single Life Expectancy at age 50 (§1.401(a)(9)-9(b)) = 36.2 years

── RMD method ──────────────────────────────────────────────────────────
payment_RMD = $400,000 / 36.2 = $11,049.72 → first-year ≈ $11,050
(recalculated each year on the then-current balance and age; first year only shown)

── Fixed amortization ──────────────────────────────────────────────────
a_n = (1 − (1.04)^(−36.2)) / 0.04 ≈ 18.9559 (IRS Notice 2022-6, Q&A 7)
payment_Amort = $400,000 / 18.9559 = $21,101.61 → ≈ $21,102
(fixed for the life of the series)

── Fixed annuitization ─────────────────────────────────────────────────
annuityFactor(age 50, 4%) = 18.1568 (IRS Notice 2022-6, Q&A 7 — IRS-published)
payment_Annuity = $400,000 / 18.1568 = $22,030.17 → ≈ $22,030
(fixed for the life of the series)

The contrast between methods is striking: amortization and annuitization produce nearly twice the RMD payment ($21,102 and $22,030 versus $11,050). Both fixed methods generate higher distributions because they project the balance forward at the 4% assumed rate — that implied earning base supports a larger annual draw. The RMD method assumes no earnings and simply divides the current balance by the life-expectancy factor, producing the most conservative result.

Required duration for Bob at age 50: max(50 + 5, 59.5) = 59.5 — the series must continue until age 59½, a period of 9.5 years from the first payment.

The interest-rate cap — and why 5% is the default today

For fixed amortization and annuitization, the chosen interest rate may not exceed the greater of 5% or 120% of the federal mid-term Applicable Federal Rate (AFR) for either of the two months preceding the first payment (IRS Notice 2022-6, Q&A 4). The AFR is published monthly by the IRS and fluctuates with market rates.

As of January 2026, 120% of the federal mid-term AFR is approximately 4.57%, so the 5% floor governs. A taxpayer establishing a SEPP series in early 2026 who uses a 5% rate is at the current effective ceiling. Using a higher rate would produce a higher annual payment but would risk IRS challenge — a distribution computed at an above-cap rate would not satisfy the Notice 2022-6 method definition and could be disqualified. (Last reviewed: June 2026; AFR published monthly at irs.gov.)

The interest-rate assumption applies only to amortization and annuitization. The RMD method requires no interest-rate input — it divides the current-year balance by the current-year life-expectancy factor and nothing else. This is one reason the RMD method produces a lower payment: it incorporates no projection of future earnings.

Required duration — the later of 5 years or age 59½

The SEPP series must continue until the later of: (a) five full years after the date of the first distribution, or (b) the date the account owner reaches age 59½. In formula terms: endAge = max(age + 5, 59.5). A few cases illustrate how this plays out:

• Age 50 (Bob’s case): max(55, 59.5) = 59.5 — the age-59½ threshold controls; 9.5 years of required distributions.
• Age 56: max(61, 59.5) = 61 — the five-year minimum controls. Even though age 59½ is reached after 3.5 years, the series must run the full 5 years.
• Age 54: max(59, 59.5) = 59.5 — the age-59½ threshold controls by a fraction of a year; 5.5 years required.

The required-duration formula is among the most consistently misunderstood aspects of §72(t) planning. A 57-year-old who assumes the series can end at age 59½ — two and a half years into a five-year minimum — would trigger retroactive recapture on every prior payment. The five-year clock runs from the first distribution date, not from when the taxpayer turns 55 or any other birthday.

Recapture risk — the most consequential constraint

Modifications that trigger recapture under §72(t)(4) include: taking an amount different from the scheduled payment (too much or too little), skipping a payment, rolling additional funds into the SEPP account, taking any supplemental withdrawal from the SEPP account, or stopping distributions before the required end date. The IRS has also applied recapture when a taxpayer changed the computation method mid-series without using the one permitted switch described below.

Because of this retroactive reach, the standard practice is to hold the SEPP assets in a discrete, dedicated IRA — separate from all other IRA accounts — with no additional contributions, no rollovers in, and no withdrawals beyond the scheduled SEPP payments. The SEPP account is effectively frozen for the duration of the series: whatever balance it holds at inception is the balance from which all future payments are calculated (for the fixed methods) or annually re-derived (for the RMD method).

The one permitted change — the one-time RMD switch

IRS Notice 2022-6 Q&A 10 permits one narrow modification that does not trigger recapture: a one-time, one-way switch from fixed amortization or fixed annuitization to the RMD method. Notice 2022-6 illustrates this with a taxpayer named Sam, who began a SEPP series at age 50 under fixed amortization. At age 55, her account balance has grown to $810,250 and she exercises the one permitted switch.

Sam — one-time switch to the RMD method at age 55

Single Life Expectancy at age 55 (§1.401(a)(9)-9(b)) = 31.6 years
payment_RMD (switch year) = $810,250 / 31.6 = $25,641.46 → ≈ $25,641

Required end date: max(50 + 5, 59.5) = 59.5 (set at series inception)
Remaining years from the switch: 59.5 − 55 = 4.5 years
From the switch year forward, Sam re-divides annually under the RMD method.

Constraints of the switch are strict: Sam cannot reverse course and return to fixed amortization. She cannot switch from the RMD method to either fixed method. The permitted direction is from a fixed method to RMD — once, and in that direction only. Any deviation from the RMD schedule in subsequent years — including skipping a payment or taking a different amount — would be a modification and would trigger retroactive recapture on all prior distributions, including those from the original fixed-amortization period before the switch.

The practical value of the switch is downside protection. If the SEPP account loses significant value, continuing the original high fixed payment could draw down the account faster than planned. Switching to the RMD method scales each distribution to the remaining balance, reducing the depletion rate. The tradeoff is that annual payments become variable and, in a down-market year, will be lower than the original fixed amount.

Why this matters for early retirees

The §72(t)/SEPP provision addresses a structural problem for early retirees: most retirement savings are held in tax-deferred accounts — traditional IRAs and employer-plan assets rolled into IRAs — that impose the 10% penalty on distributions before age 59½. For someone who stops working at 45, 50, or 55, this creates a gap between when earned income stops and when penalty-free IRA access begins.

Other approaches to bridging this gap include drawing from taxable brokerage accounts, using Roth contribution basis (not growth) penalty-free at any age, or building a Roth conversion ladder — converting pre-tax IRA funds each year and accessing the converted principal tax- and penalty-free after a five-year holding period. A SEPP offers a different path: structured, penalty-free access directly from a traditional IRA, without requiring a prior Roth conversion, at amounts that can be calibrated using the fixed methods to match anticipated income needs.

Which approach — or combination — is appropriate depends entirely on an individual’s account balances, tax situation, income needs, and timeline. This guide describes the statutory mechanism, the IRS-defined methods, and the rules governing them. It does not recommend a course of action for any specific reader.

Sources: IRC §72(t)(2)(A)(iv) and §72(t)(4) · IRS Notice 2022-6 (Q&A 4, 7, 10) · Treasury Reg. §1.401(a)(9)-9(b) (Single Life Expectancy table) · Treasury Reg. §1.401(a)(9)-9(e) (Mortality Table 4) · irs.gov/retirement-plans/substantially-equal-periodic-payments

This guide is for informational and educational purposes only. It is not financial, tax, or legal advice. Tax rules are complex, fact-specific, and subject to change. Consult a qualified tax or financial professional before making IRA contribution or conversion decisions.

Last reviewed: June 2026 · Against IRS Notice 2022-6 and Treasury Reg. §1.401(a)(9)-9(b) and (e).